I am thinking of a number…

It is the holiday season and everyone, including myself, is out trying to fill their Christmas gift list. I am not 100% sure what I am going to get everyone but I have been looking at many different items via the internet where I can compare prices, read reviews, and truly be an engaged consumer. These on-line tools allow me to research the cost and quality information on particular item of interest .For example, a new toaster varies in price depending on the features that one wants in a toaster but if you can narrow it down to a toaster that is made by GE, toasts two pieces of toast in one toasting session, sits upright, and silver you will find that the price for that toaster is pretty universal, with slight variations of course i.e. maybe a toaster in Miami is ‘cheaper’ then a toaster in Omaha because everyone in Miami is on the South Beach diet etc. In fact, as ‘enlightened consumers’ we have come to expect information on products and services to be at our figure tips when making almost all of our purchases except we do not expect cost and quality information when it comes to our healthcare.

Our healthcare delivery model for the most part does not incentives the consumer to search out cost and quality information because a) healthcare is very complicated and most people have very little true understanding of its complexities b) we pay a hefty premium for a third party to pay for our expenses (leaving us with little to no incentive to be good ‘consumers’) and c) a growing number of individuals feel that health care is an undisputable right that is found in a footnote somewhere in the original Bill of Rights (never mind the healthcare available to our founding fathers was pretty much limited to leaches and purges). For example, would you buy a car without doing research on the make and model of that car i.e. would you simply go on someone’s recommendation alone on buying that car? Therefore, the true cost of healthcare in this country has not been made readily available because there has not been an incentive to do so.

The Wall Street Journal (‘WSJ’) ran a story on 11/29/2007 titled “As Medical Costs Soar, The Insured Face Huge Tab;” that highlights Jim Dawson healthcare journey that starts with him nearly dying and highlights the bills that followed. This article addressed the very real problem of trying to quantify the true cost of care. For example, Jim Dawson did hold health insurance but because of the complexity of his illness went through the max coverage cap on his health insurance plan. At one point he owned over a one million dollars, which he accumulated during his hospital stays and exuberate charges for such items like Oxygen Masks ($2,225-$6,675) and socks ($791!) that were charged to him by the hospital.

“‘ I do not deny that our charges look insane,” says Dr. Point CPMC’s chief medical officer. But all hospitals operate the same way he says.”It’s the realty of the industry”’

Why is this situation, described by Dr.Point, ‘the reality of the industry?’ Hospitals/ Providers inflate their costs because of three main factors 1) large right offs 2) account receivables and overhead incurred on managing claims with insurance companies and 3) government mandated programs (Medicare and Medicad). This issues exist because the individual consumer has no incentive to be a better consumer, the insurance companies are being empowered by the consumer to manage all of their risk (in a traditional health plan) for a premium, have perfected the art of extending their accounts payable to the providers, and government health programs are run on a budget with little to no incentive for competitive forces to exist. Creating an effect where the true cost of care exist somewhere in the haze of inflated prices for health care services and insuffecient Medicare/Medicad reimbursements.

The solution will have to come not from the government but come from the empowered consumer. Consumers have to have an incentive to be better consumers of their own care in order to not only bring out the true cost of care but also to continue to advance the quality of care received. The rising cost of healthcare, due in part to the subject of this blog posting, has forced many individuals and employers to investigate consumer driven health plans where the consumer has more financial responsibility before the insurance kicks in (ie Health Savings Accounts “HSA”). The empowered consumer will demand pricing and will use the power of his dollar to find the best price; providers will compete for cash paying patients by catering to the needs of the empowered consumer, and insurance companies will find themselves in my opinion in a better position from an overhead standpoint by insuring only the catastrophic. Medicine is complicated; therefore, we must align the incentives of all parties involved otherwise the fight for discovering the true cost of care and curtailing the rise cost of healthcare will all be for not.